The under-representation of women on boards is a heavily discussed topic—not only in Germany. Based on critical mass theory and with the help of a hand-collected panel dataset of 151 listed German firms for the years 2000–2005, we explore whether the link between gender diversity and firm performance follows a U-shape. Controlling for reversed causality, we find evidence for gender diversity to at first negatively affect firm performance and—only after a “critical mass” of about 30 % women has been reached—to be associated with higher firm performance than completely male boards. Given our sample firms, the critical mass of 30 % women translates into an absolute number of about three women on the board and hence supports recent studies on a corresponding “magic number” of women in the boardroom.
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The DAX reflects the segment of blue chips admitted to the Prime Standard segment and comprises the 30 largest and most actively traded companies which are listed at the Frankfurt Stock Exchange. The index portfolio of the MDAX comprises 50 mid-cap issues from traditional sectors which, in terms of market capitalization and trading volume, rank below the DAX. These companies are selected from the continuously traded companies in the Prime Standard segment. The SDAX comprises the next 50 issues from the traditional sectors within the Prime Standard segment that are ranked below the MDAX. The TecDAX tracks the 30 largest issues, in terms of market capitalization and trading volume, from the various technology sectors of the Prime Standard segment beneath the DAX.
Owing to the internationalization of the German stock market, more and more German firms switched their financial reporting from the local German accounting standard HGB to the IFRS or U.S. GAAP during our period of observation.
Outliners were defined as having an ROE of either more than 100 or less than −100.
According to the Stock Cooperation Act (Aktiengesetz 2010), German supervisory boards have a minimum size of three and a maximum of 21 seats depending on statutory equity capital. A supervisory board consisting of only two members hints at a temporary vacancy.
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Joecks, J., Pull, K. & Vetter, K. Gender Diversity in the Boardroom and Firm Performance: What Exactly Constitutes a “Critical Mass?”. J Bus Ethics 118, 61–72 (2013). https://doi.org/10.1007/s10551-012-1553-6
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